Options contracts are often confusing to first-time investors. People assume that purchasing an option is just another way to purchase stock. This is not actually true. When a person gets an option contract, he is not actually buying stock. Instead, he is getting the right to buy or sell a certain amount of shares at a set price (strike price).

Option contracts will have a purchase date and an expiration date. If during that period an investor does not want to exercise his option to buy or sell, he does not have to. However, if a stock hits a certain price where acting on the option will benefit him, he can act.

Put/Call Option Contracts

Call option contracts are established for investors who want the right to buy shares at the strike price, while put options are for those who want to sell. Making money on either option requires a stock to do what the investor foresees. While the majority of people who buy stocks hope that share prices will rise, many people who deal with option contracts are counting on the fact that share prices for certain stocks will drop.

Getting put or call option contracts is not that difficult. In fact, many online trading sites now give their customers the opportunity to trade options. However, just because they are easy to get does not mean that everyone should get involved. There are different rules for investors who deal in option contracts than those who trade stocks, securities, or work with mutual funds. Gaining a full understanding of these differences will often require the aid of an experienced investor or broker.